Analysing financial services industry using data envelopment analysis

Abstract

The ongoing credit crisis in the financial markets has led to tremendous turmoil in the financial services industry. As a result, during the last one year, we have seen a substantial decline in the profitability and liquidity of the financial services companies. In this paper, we analyse the financial performance of thirteen leading financial services firms to evaluate their relative standing in the industry. We illustrate the use of data envelopment analysis (DEA), an operations research technique, to evaluate the relative financial strength of thirteen financial services firms by benchmarking the financial ratios of a firm against its peers. DEA clearly brings out the firms that are operating more efficiently in comparison to other firms in the industry, and points out the areas in which poorly performing firms need to improve.

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